CORPORATION LAWCourse OutlineA. GENERAL PRINCIPLESa-1. Definition artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence [Section 2]a-2. Kinds of Businesses1. As to Organization1-a. Sole Proprietorship [Bar, 1949]1-b. Partnership [Article 1767, New Civil Code]1-c. Corporation1-d. Joint Venture categorized as a form of limited partnership since its period [Kohler,Dictionary for Accountants, 1975, p. 243; seeJ.M. Tuason & Co. vs. Bolanos, L-4935, 28 May 1954;Bar, 1987;Bar 1995]1. As to Activity2-a. Merchandising2-b. Manufacturing2-c. Service-concerneda-3. Attributes of a Corporation1. Artificial Being1-a. Separate entity concept [Bar, 1996]1. Liability for Torts [PNB vs. Court of Appeals, 83 SCRA 237]2. Liability for Damages [Bar, 1955]3. Liability for Crimes [Sia vs. People, 121 scra 655;People vs. Conception, 44 Phil. 126;Section 144]4. Constitutional rights -a. Due process [Albert vs. University Publication Co., 13 SCRA 84]b. Equal protection [Smith Bell & Co., vs. Natividad, 40 Phil. 136]c. Unreasonable search and seizures [Stonehill vs. Diokno, 20 SCRA 383]5. Theory of Concession [Tayag vs. Benguet Consolidated, Inc., 26 SCRA 242]1-b. Piercing the Veil of Corporate Entity1. Definition corporate fiction disregarded where the entity is formed or used for non-legitimate purposes [Bar, 1978;Bar 1985;Bar 1991]2. Reasons: When corporation is used toa. Defeat public convenienceb. Justify wrongc. Protect fraudd. Defend crimee. As mere alter ego [Umali vs. Court of Appeals, 189 SCRA 529]3. Casesa. Claparols vs. CIR[65 SCRA 613]b. Cruz vs. Dalisay[152 SCRA 482]c. Tan Boon Bee and Co. vs. Jarencio[163 SCRA 205]d. CIR vs. Norton & Harrison Company[11 SCRA 714]c.Philippine Veterans Investment Development Corporation vs. Court of Appeals[181 SCRA 669]d.Telephone Engineering and Service Co., Inc. vs. Workmens Compensation Commission[104 SCRA 354]4. Theory of Corporate Enterprise [Rationale: there can be no association without associates,Villanueva, p. 266]1. Created by Operation of Law3-a. Creation under the Corporation Code3-b. Creation under a Special Law1. Governed primarily by Charter creating it2. Corporation Code applies only on a suppletory manner [Section 4]3-c. De Facto Corporation [Section 20;Bar, 1989]1. Definition a corporation that actually exists as a corporate body, but which, because of failure to comply with some provisions of the law, has no legal right to corporate existence as against the state. Certificate of incorporation must be issued. This is distinguished with Corporation de Jure.2. Only the state can question the personality of the corporation. Right usurped is that of the sovereign, then it is the sovereign alone can question it through aQuo Warrantoproceedings represented by the Solicitor General3. Requisites a. Law authorizing incorporationb. Bona fide attempt to organizec. Assumption of corporate powers3-d. Corporation by Estoppel [Section 21]1. Defined applies to persons assuming to act as a corporation without authority to do so with respect to third persons who were prejudiced on the basis of their misrepresentations2. How Action Commenced Sued under the name by which they are generally or commonly known [Section 15, Rule 3,Revised Rules of Court]3. Liability liable as general partners1. Coveragea. Debtsa. Liabilitiesb. Damages1. Perpetual Succession3-a. Concept not immortality, but continuity of corporate life3-b. Corporate Term [Section 11]1. Duration not exceeding 50 years2. Renewable for another 50 years within 5 years prior to expiration [Alhambra Cigar vs. Securities and Exchange Com-mission, 24 SCRA 269]3-c. Extension or Shortening of Term [Section 37;Bar, 1988]3-d. Doctrine of Relation Delay in the approval of the application for extension of corporate term attributable to circumstances beyond the control of corporation would make the new charter related back to the day the corporation is entitled to have the charter issued [Vitug, p. 379]1. Powers, Attributes and Property Rights4-a. Express Powers 1. Section 36 of the Corporation Code and2. Purpose of corporation as stated in the Charter4-b. Implied Powers which are necessary in order to attain or execute the express powers4-c. Incidental Powers which can be exercised by the mere fact of its being a corporationa-4. Classes of Corporations [Bar, 1954]1. Statutory1-a. Stock Corporation [Sections 3 and 63] one where the ownership of the interest or equity is represented in the form of shares of stock1-b. Non-Stock Corporation [Sections 87-95] one where the interest or equity is in the form of membership1-c. Close Corporation [Sections 76-105]1-d. Foreign Corporation [Sections 123-136]1-e. Educational Corporation [Sections 106-107]1-f. Religious Corporation [Sections 109, 116]1. As to Number2-a. Corporation Sole [Sections 110-115;Bar, 1954]2-b. Corporation Aggregate1. As to Purpose3-a. Ecclesiastical3-b. Eleemosynary [Bar, 1967]3-c. Lay3-d. Public 1. Defined one formed or organized for the government of a portion of a State for the purpose of promoting the general good and welfare [Section 3,Act. No. 1456]2. Constitutional Prohibition - The Congress shall not, except by general law, provide for the formation, organization or regulation of private corporations. Government owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability [Section 16, Article XII, 1987 Constitution]3. Corporation Code applies on a suppletory manner [Section 4]4. Quasi-Public corporation refers to a private corporation that is franchised or licensed by the government to render services involving performance of public utilities5. Public-Quasi corporation refers to a public corporation engaged in the performance of public or governmental function but not being the State or its political corporation1. As to Nationality4-a. Tests of Nationality [Bar, 1957]1. Incorporation Test2. Control Test [seeFilipinas de Seguros vs. Christern, Huenefeld & Co., Inc. G.R. L-2294, 25 May 1951]3. Residence Testa. Generally fixed by law creating themb. Place where legal representation is established or where principal functions are exercised4-b. Classes1. Domestic Corporation those organized in accordance with B.P. 682. Foreign Corporation those organized under a foreign law that allows Filipino citizens and corporations to do business in their state or country [Section 123]4-c.Grandfather Rule[SEC Opinion, 4 May 1987]1. As to Existence5-a. De Jure5-b. De Facto [Section 20;Bar, 1955;Bar, 1959]5-c. Corporation by Estoppel [Section 21;Bar, 1955;Bar, 1973]1. As to Membership6-a. Open Corporation6-b. Close Corporation one whose Charter provides1. All corporate stocks issued must be held of record by not more than 20 persons2. All corporate stocks issued are subject to certain restrictions on transfer3. Stocks are not listed in any stock exchange [Section 96]1. As to Relation with Other Corporations7-a. Parent7-b. Subsidiarya-5. Four Basic Advantages of a Corporation [Bar, 1953]1. Separate juridical personality2. Limited liability of investors1. Free transferability of units of ownership2. Centralized managementa-6. Components of a Corporation1. Incorporators [Bar, 1952]1-a. Definition those stockholders or members mentioned in the Articles of Incorporation as originally forming the corporation [Section 5]1-b. Qualifications [Section 10]1. Majority are Philippine residents2. Natural persons3. Of legal ages4. Not less than 5 not more than 155. Owner or subscriber of at least 1 share of stock1. Corporators2-a. Definition those composing the corporation, whether stock or non-stock [Section 126;Bar, 1952]2-b. Kinds 1. Stockholders corporators of stock corpo-rations2. Members corporators of non-stock corpo-rationsa-7. Capital Structure1. Terminologies1-a. Capital Stock amount subscribed and paid in by the stockholders or secured to be paid in upon which the corporation is to conduct its operations [Bar, 1957;Bar, 1964]1.b. Authorized Capital Stock total amount of the capital stock which it can raise [Bar, 1964]1-c. Subscribed Capital Stock amount of authorized capital which has already been subscribed [Bar, 1964]1-d. Stated Capital1-e. Legal Capital refers to the amount of funds received by the corporation in payment of the shares of stocks. This shall be held in trust for the creditors of the corporation under the Trust Fund Doctrine.1-f. Paid-up Capital amount of subscription that has already been paid [Bar, 1964]1. Legal Requirement2-a. Pre-Incorporation [Sections 12-13]1. 25% of authorized capital stock subscribed2. 25% of subscribed capital stock paid3. In no case less thanP5,000 [Section 13]2-b. Post-Incorporation [Section 38]1. Applies to increases in capitalization2. 25% of increase capital stock subscribed3. 25% of subscribed capital stock paid4. Treasurers Affidavit1. Classifications of Shares [Section 6]3-a. Preferred shares those which entitles the owner certain preferences [Bar, 1949]1. As to Dividends2. As to Liquidation3-b. Common shares those ordinary stocks of a corporation which entitles the owner to pro rata dividend without any priority or preference over any other stockholders [Bar, 1949]3-c. Par Value shares those whose value is fixed in the Articles of Incorporation [Bar, 1950]3-d. No-Par Value shares [Bar, 1958;1970;Bar, 1984]1. Typesa. With stated valueb. Without stated value1. Valuation of Shares of Stocks [Section 62]a. Articles of Incorporationb. Board of directors pursuant to an authority conferred by the Charter or by the By-Lawsa. Majority vote of the stockholders1. Corporations Prohibited to Issue No-Par Value Shares [Bar, 1958,Bar, 1959]a. Banksb. Insurance companiesc. Trust companiesa. Building & trust associationsb. Public utilities3-e. Voting shares [Bar, 1984]3-f. Non-Voting shares1. Treasury shares [Section 9]2. Preferred shares [Section 6]3. Redeemable shares [Ibid]3-g. Redeemable shares refer to shares that may be purchased or taken up by the corporation upon the expiration of a fixed period regardless of the existence of unrestricted retained earnings [Section 8]3-h. Convertible shares those which give the holder the option to convert the same into another class of shares3-i. Shares in escrow shares deposited with a third person to be delivered to the stockholder upon compliance with certain conditions3-j. Treasury shares [Bar, 1992]1. Definition shares issued and fully paid but subsequently reacquired by the issuing corporation [Sections 9]2. When Necessary [Bar, 1949]a. Elimination of fractional sharesb. Collection or compromise of unpaid subscriptionsc. Payment to dissenting/withdrawing stockholders [Section 41]3-k. Delinquent shares those which were declared as such3-l. Founders shares [Section 7]1. Definition - shares of stocks classified as such in the Articles of Incorporation given to the founding stockholders2. They enjoy certain rights and privileges not available to other classes of stocks3. If privilege consists of the exclusive right to vote and be voted upon as Director, it must be for a period not exceeding five (5) years3-m. Outstanding shares shares fully paid and already in the hands of the stockholders3-n. Issued shares [Section 137]3-o. Watered shares shares issued for no or less than their par or stated value [Bar, 1993]4. Issuance of Stock Certificates [Section 64]4-a. Ways of issuance1. Subscription refers to any contract for the acquisition of unissued stock in an existing corporation or corporation still to be formed [Section 60]a. Pre-Incorporation subscription of stocks in a corporation still to be formed irrevocable for a period of 6 months from date of subscription [Section 61;Bar, 1979]b. Post-Incorporation subscription of stocks in a corporation after its formation2. Exchange or other onerous transfers3. No promissory notes, no future services1. Issued only upon full payment [Bar, 1976;Bar, 1975;Bar 1979;Bar, 1988]2. Cannot be set-off against unpaid salary [Apodaco vs. NLRC, 172 SCRA 442;Article 102, Labor Code of the Philippines;Bar, 1988]4-b. Consideration for Issuance [Section 62]1. Cash2. Property, whether tangible or intangible3. Labor performed or services actually rendered [Bar, 1952]1. Previously incurred indebtedness2. Amounts transferred from unrestricted retained earnings to stated capital3. Reclassification or conversion4-c. Collecting Subscriptions1. Determination of Due Date [Section 67]a. Subscription contractb. In the absence, at any time from the date specified in the call by the Board of Directors2. Effect of Non-Payment on Due Datea. Entire balance becomes due and payableb. After the lapse of 30 days from due date, stocks become delinquent. As such, holder lose all rights due as a stockholder except the right to dividends [Section 71]3. Modes of Collection [Bar, 1988]a. Judicial remedy ordinary suit for collection of sum of money [Section 70]b. Extrajudicial remedy - Delinquency sale [Section 68;Bar, 1969;Bar, 1997]1. Resolution2. Notice of Delinquency Sale3. Publication4. Public Auction5. Sale to highest bidder or treasury sharesc. Minimum Amount Due1. Balance on subscription2. Accrued interest, if any3. Advertisement costs4. Expenses of saled. Application of Dividends [Section 71]1. Interests on Unpaid Subscriptions [Section 66]a. General Rule: No interest payableb. Exception1. By-Laws provision2. At the rate prescribed in the By-Laws3. In the absence of the rate prescribed therein, legal rate4-d. Right of Pre-Emption [Bar, 1982;Bar, 1983;Bar 1984]1. Definition right of the stockholder to subscribe additional shares of stocks before the same can be offered to the public in proportion to their respective shareholdings2. When Right Deniable [Section 39]a. Denial by the Charterb. Shares issued to comply with legal Filipino ownership requirementsc. Shares issued in exchange for property needed or in payment of previously contracted indebtedness in accordance with the approval of 2/3 of stockholders or members3. Coveragea. Only shares originally offered for sale to the publicb. Does not include1. Shares previously offered but not sold2. Treasury shares4-e. Issuance of New Certificates [Section 73]1. Coveragea. Lostb. Destroyedc. Stolen1. Procedures [Bar, 1969]a. Affidavit of loss of stockholderb. Verification by the corporationc. Publication of Notice of Loss1. If no bond filed by stockholder, wait until lapse of one year from last publication2. If bond is filed by stockholder, new certificates may be issued even prior to the one year perioda. If Contested 1. Case is filed without, wait for final decision2. If no case filed, file an action for Interpleader5. Transfer of Shares of Stocks [Bar, 1981;Bar, 1994;Bar, 1995]5-a. Synopsis1. Open corporation2. Close corporation5-b. Manner of Transfer5-c. Assignment5-d. Pledge1. Pledgor entitled to the rights2. If registered in corporate books without any reservation in writing, pledgee entitled to the rights [Section 55]5-e. Mortgage1. Mortgagor entitled to the rights2. If registered in corporate books without any reservation in writing, mortgagor entitled to the rights [Ibid]B. INCORPORATION AND ORGANIZATIONb-1. Definition1. Incorporation covers all steps and processes from the time of the application for incorporation until the issuance of the Certificate of Incorporation2. Organization2-a. Definition refers to the acts of starting the operations of the corporation as a going concern and the establishment of machineries to run its operations2-b. Steps1. Adoption of By-Lawsa. Pre-incorporationb. Post-incorporation one month from issuance of Certificate [Section 46]2. Election of corporate Directors3. Election of corporate Officersb-2. Terminologies1. Promotion the initial and pre-incorporation steps until the actual formation of the corporation [Bar, 1949]2. Primary franchise2-a. Definition - refers to the right to exist as a corporation2-b. Characteristics1. Vested in the individuals who compose the corporation and not in the corporation itself2. Incapable of being transferred1. Secondary franchise3-a. Definition - refers to the right to conduct the business of the corporation3-b. Characteristics1. Vested in the corporation itself2. Capable of being transferred1. Concession theory Registration and issuance of the Certificate of Incorporation signals the birth of the corporations personality [Vitug, p. 391]2. Articles of Incorporation basic document for the registration of a corporation3. Corporation By-Laws set of rules or guidelines for the internal operation of the corporation4. Certificate of Incorporationb-3. Steps in Incorporation1. Promotion 1-a. Definition - the conduct of a project or feasibility study that interests prospective investors to set-up a corporation business.1-b. Who Undertakes - This is undertaken by a person called the promoter for a fee or consideration1-c. Effect binding only between the promoter and the parties and prospective investors who signed and executed the promotion contract. This is binding only upon the corporation if, after its creation, the promotion contract was adopted by the corporation by virtue of a Board Resolution2. Drafting and Execution in compliance with the compliance with the requirements [Sections 13, 14, 15, 61, 139-141]3. Issuance of Certificate of Incorporation [Section 19]b-4. Articles of Incorporation [Bar, 1990]1. Definition charter of the corporation1. Contents [Sections 14, 15]2-a. Name of corporation [Section 18;Republic Planters Bank vs. Court of Appeals,216 SCRA 738;Bar, 1976]2-b. Purpose/purposes [Bar, 1976;Bar, 1977]2-c. Principal place of business2-d. Term of existence [Section 11]2-e. Incorporators [Section 10]2-f. Number of Directors/Trustees2-g. Acting or Temporary Directors/Trustees2-h. Stock Corporation data [Bar, 1984]2-i. Non-stock corporation data2-j. Other matters3. Attachments3-a. Treasurers Affidavit3-b. Favorable recommendation of appropriate government agency3-c. Amendments of Articles [Section 16]1. By vote2. By written assent4. Purpose of Charter4-a. Contract between State and the corporation4-b. Contract between the corporation and corporators4-c. Contract between State and the corporators [Government of the Philippine Islands vs. Manila Railroad Co., 52 Phil. 699]5. Other Documents5-a. Verification slip contains the corporate name duly verified and certified to by the records section of the Securities and Exchange Commission5-b. Letter-Undertaking contains the undertaking of the corporate secretary or treasurer of the corporation to change the corporate name in the event that the same has already been used or appropriated by another corporation, person or firm5-c. Bank Certificate shows the amount of the paid-up capital in the name of the Treasurer in trust for the corporation which is in the process of incorporation5-d. Letter-Authority contains the express authority given by the treasurer of the corporation in favor of the Central Bank and/or Securities and Exchange Commission to examine the account involving the paid-up capital5-e. Treasurers Affidavit 5-f. Statement of Assets showing the assets of the corporation in the form of the amount of subscription, the paid-up capital and the balance on account of the subscription5-g. Registration Sheet contains details concerning the names of incorporators, the kind and nature of corporation, names and addresses of directors and officers, as well as data of stock capitalization6. Grounds for Disapproval5-a. Non-conformity with the prescribed form5-b. Patently illegal or immoral purpose5-c. False Treasurers Affidavit5-d. Non-compliance with required Filipino ownership5-e. Non-submission of required favorable recommendation of appropriate government agencyb-5. Corporate By-Laws1. Definition set of rules or guidelines for the internal operation of the corporation2. Adoption of By-Laws [Section 46]2-a. When adopted1. Pre-incorporation2. Post incorporation within 1 month from issuance of Certificate of Incorporation2-b. How adopted affirmative vote of majority of the corporators1. Purposes defines the3-a. Relation between the stockholders and the corporation3-b. Relation between the stockholders interse3-c. Relation between the Board of Directors/Trustees and Officers and the corporation3-d. Relation between the Board of Directors/Trustees and Officers and the stockholders3-e. Particulars for stockholders and Board of Directors/Trustees meetings3-f. Other internal operations of the corporation4. Elements of Valid By-Laws4-a. Consistent with general laws4-b. Consistent with public policy and public welfare4-c. Reasonable4-d. Consonance with the Charter and the nature, purposes and objects of the corporation5. Contents [Section 47]5-a. Time, place and manner of calling and conducting regular or special meetings of directors and trustees5-b. Time and manner of calling and conducting regular or special meetings of stockholders or members5-c. Required quorum in meetings of stockholders or members and the manner of voting therein5-d. Form for proxies of stockholders and members and the manner of voting them5-e. Qualifications, duties and compensation of directors or trustees, officers and employees;5-f. Time for holding annual election of directors or trustees and the mode or manner of giving notice thereof5-g. Manner of election or appointment and the term of office of all officers other than directors or trustees5-h. Penalties for violation of by-laws5-i. Manner of issuing stock certificates5-j. Other matters necessary for the proper or convenient transaction of corporate business and affairs6. Amendments [Section 48]6-a. Who can exercise1. Majority of the board of directors or trustees and majority of the corporators2. May be delegated to the board of directors or trustees by 2/3 votes of the corporators. Power delegated may be revoked by majority votes of the corporators6-b. Procedures1. Attach amended By-Laws to original and Articles of Incorporation2. Copy of amended By-Laws certified under oath by corporate secretary and majority of board of directors or trustees filed with the Securities and Exchange Commissionb-6. Effects of 1. Non-Organization [Section 22]1-a. Coverage failure to organize within two (2) years counted from the issuance of the Certificate of Incorporation for causes within its control1-b. Effect corporate powers ipso facto cease to exist [Bar, 1979]1. Continuous Inoperation [Section 22]2-a. Coverage continuous inoperation for five (5) years for causes within its control2-b. Effect ground for the suspension or revocation of its corporate franchiseC. CORPORATE MANAGEMENTc-1. Levels of Control in Corporate Heirarchy [Citibank NA vs. Chua, G.R. No. 102300, 17 March 1993]1. Board of Directors/Trustees2. Corporate Officers3. Stockholdersc-2. Board of Directors/Trustees [Section 23;Bar, 1975]1. Definition repository of corporate powers [Ramirez vs. Orientalist Company, 38 Phil. 634;Bar, 1975]2. Number [Section 14]3. Qualifications [Section 23;Bar, 1946;Bar, 1965]3-a. Natural persons3-b. Legal age3-c. Not disqualified by law3-d. Owner of at least one share of stock [Bar, 1984;Bar, 1987]3-e. Majority are residents1. Disqualifications [Section 27]4-a. Convicted by final judgment of an offense punishable by an imprisonment for a period exceeding six (6) years4-b. Convicted by final judgment of an offense for violation of the Corporation Code committed within five (5) years prior to his election or appointment1. Elections [Section 24]5-a. Manner1. Viva voce2. By ballot when requested by any voting shareholder3. In person or by proxy5-b. Requirements1. Proper notice2. Attended by majority of stockholders5-c. Voting1. Cumulative [Bar, 1951]a. Purpose to secure representation of minority stockholders in the Board of Directors/Trusteesb. How Made Number of votes is to be determined by multiplying the number of directors to be voted upon and the number of shares2. Individual1. Removal [Section 28]6-a. Instances1. For cause2. Without cause6-b. Requirements1. Vote of stockholders representing 2/3 of the outstanding capital stock or 2/3 votes of the members entitled to vote2. Removal without cause should not deprive minority stockholders or members of the right of representation [Bar, 1983;Bar, 1991]1. Vacancies7-a. Causes1. Removal [Section 28]2. Expiration of term3. Increase in number4. Other causes such as death, resignation, retirement7-b. How Filled Up [Section 29]1. By Board if still constituting quorum in vacancies resulting from causes other than removal, expiration of term or increase in number2. By stockholders in an election called for such purpose if vacancy is due to:a. Removalb. Expiration of termc. Increase in numbera. Remaining members of the Board no longer constitute quorum1. Meetings8-a. Requisites of Valid Board Meetings1. Proper Notice [Bar, 1990]2. Meeting of Board duly assembled3. Existence of a quorum4. Decision of the majority of the quorum8-b. Quorum [Bar, 1970]1. By Laws provision2. Majority of the number of directors or trustees as fixed by the Articles of Incorporation8-c. Particulars [Section 53]1. General Rules By-Laws provision2. Regular Meetingsa. Frequency monthlyb. Place in or outside the Philippines [Bar, 1987]c. Notice at least one day prior to the schedule3. Special Meetingsa. Frequency as the need arisesb. Place in or outside the Philippinesc. Notice at least one day prior to the schedule8-d. Cases1. Calica vs. Labatique, 55 OG 6472. Ingersoll vs. Malabon Sugar Company,53 Phil. 7451. Compensation [Section 30;Bar, 1987]9-a. General Rule : Only reasonable per diems9-b. Exception1. By-Laws2. Vote of stockholders representing at least a majority of the outstanding capital stock or a majority of the members9-c. Limitation not to exceed ten percent (10%) of the net income before income tax of the corporation during the preceding year [Bar, 1991]c-3. Corporate Officers [Bar, 1995]1. Types1-a. Statutory1. President [Bar, 1948;Bar, 1950;Bar, 1960;Bar, 1971;Bar, 1993]a. Must be a directorb. Not a secretary nor treasurer at the same time2. Secretarya. Must be a citizenb. Must be a resident of the Philippines3. Treasurer1-b. Non-Statutory1. Rule other officers may be provided in the By-Laws2. Casesa. General Manager function is only to supervise and conduct the ordinary business of the corporation [seeLiboro vs. Rogers, L-11046, 30 October 1959]b.Board of Liquidators vs. Kalaw, 20 SCRA 989]1. How Elected majority of all the members of the Board of Directors or Trustees2. Compensation3-a. Directors [Section 30]3-b. Officer-Directorc-4. Executive Committee [Section 35]1. Creation by virtue of By-Laws provision2. Composition not less than 3 members of the Board of Directors/Trustees3. Delegable Acts all acts or matters within the competence of the Board of Directors/Trustees except when explicitly prohibited by the Corporation Code or the By-Laws1. Non-delegable Acts4-a. Approval of any action requiring stockholders approval4-b. Filling-up of vacancies in the Board of Directors or Trustees4-c. Amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable4-c. Distribution of cash dividends to stockholdersc-5. Management Contracts [Section 44]1. Creation1-a. Resolution signed by majority of the Board1-b. Majority vote of stockholders or members1. Requirements2-a. Votes representing 2/3 of the outstanding capital stock or 2/3 of the members2-b. In case of1. Interlocking stockholders owns 1/3 interest of the managing corporation2. Interlocking directors -1. Limitationsc-6. Ultra Vires Corporate Acts [Section 45]1. Definition2. Kinds of Ultra Vires Acts3. Effectsc-7. Corporate ReportsD. CORPORATE POWERSd-1. Classification1. Express -2. Implied3. Incidentald-2. Voting Requirements1. 2/3 of Stockholders and Majority of Board of Directors1-a. Extension or shortening of corporate term [Section 37;Bar, 1953]1-b. Increase or decrease of capital stock [Section 38;Bar, 1947;Bar, 1982;Bar, 1987]1-c. Increase, incur or create bonded indebtedness [Section 38;Bar, 1956]1-d. Sale, barter, exchange or other disposition of all or substantially all corporate assets [Section 40]1-e. Investment of corporate funds to another corporation [Section 42;Bar, 1947]1-f. Investment of corporate funds to other ventures [Section 42;Bar, 1982;Bar, 1996]1-g. Declaration of stock dividends [Section 43;Bar, 1982;Bar, 1990]1-h. Enter into management contracts [Section 44;Bar, 1974]1-i. Ratification of contracts with self-dealing directors [Section 32]1-j. Ratification of contracts with inter-locking directors [Section 33]1-k. Merger or consolidation [Section 77]1-l. Voluntary dissolution of corporations [Section 118]1. Majority of the Stockholders2-a. Fixing value of no-par shares [Section 62]2-b. Adoption, amendment and repeal of by-laws [Section 46]2-c. Fixing compensation of the board of directors [Section 30;Bar, 1987;Bar, 1991]d-3. Instances where Non-Voting Shares can Vote1. Amendment of Articles [Section 16]2. Adoption and amendment of By-Laws [Bar, 1981]3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all corporate assets [Section 40;Bar, 1980;Bar, 1988]4. Incurring, creating or increasing bonded indebtedness [Section 38]5. Increase or decrease of capital stock [Section 38]6. Merger or consolidation [Sections 76-80]7. Investment of corporate funds [Section 42]d-4. Appraisal Right1. Definition2. When Exercisable3. Manner of ExerciseE. CORPORATE LIABILITYe-1. Kinds of Liability1. Corporate liability2. Officers liability [Bar, 1989;Bar, 1995]3. Directors liabilitye-2. Corporate Liability1. Usual and normal transactions2. Torts3. Crimese-3. Liability of Director/Trustee1. Personal Liability [Section 21;Bar, 1996]1-a. Business opportunity theory [Section 34;Bar, 1985;Bar, 1991]1. When Applicable a director or trustee acquires for himself a business opportunity belonging to the corporation whereby he obtained profits to the prejudice of the corporation2. Effectsa. Account for the profits to the corporationb. Personally bear the losses3. Exception: Act is ratified by 2/3 of the stockholders or members1-b. Inter-locking Directors [Section 33]1. Where applicable contracts entered into between two corporations having the same director/s or trustee/s2.1-c. Self-Dealing Director [Section 32;Bar, 1995]1. Coverage2. When Contract is Valida. Presence of director or trustee not necessary to constitute quorumb. Vote of the director or trustee not necessary to approve the contractc. Contract is fair and reasonabled. If he is an officer at the same time, the contract has been previously authorized by the Board of Directors or Trustees3. Effects on Contractsa. As a rule, voidable at the option of the corporationb. If presence of director or trustee helped in constituting quorum or his vote helped in the approval of the contract, the same is voidable subject to ratification by 2/3 of stockholders or members1. Solidary Liability2-a. Coverage [Section 31]1. Patently unlawful acts of the corporation2. Gross negligence or bad faith in directing affairs of the corporation [Bar, 1968]3. Acquisition of personal or pecuniary interest in conflict with duty as director4. Watered stocks [Section 65]2-b. To Whom Liable1. Corporation2. Stockholders or members3. Other persons2-c. Persons Liable Directors/Trustees1. Who willfully and knowingly voted or assented2. Who committed gross negligence3. Who were guilty of bad faith1. Inter-locking Directors [Section 33;Bar, 1950]3-a. Definition directors of one corporation who are at the same time directors of another corporation3-b. Coverage3-c. Effect on Contracts3-d. When Contract Valid [Bar, 1995]1. Corporation where Inter-locking Director has Substantial Interesta. No fraud involvedb. Fair and reasonablec. Quorum and required votes; otherwise there is a need for ratification2. Corporation where Inter-locking Director has Nominal Interesta. Presence in BOD meeting is not necessary to constitute quorumb. Vote unnecessary for approval of the corporate actc. Fair and reasonable1. Doctrines4-a. Doctrine of Limited Liability shields the corporators from corporate liability beyond their agreed contribution to the capital or shareholding4-b. Doctrine of Immunity protects a person acting for and in behalf of the corporation from being personally liable for his authorized acts [Bar, 1988], This is otherwise known as the business judgment rule [Bar, 1986].F. RIGHTS OF STOCKHOLDERSf-1. Classification of Rights [Bar, 1995]1. Managerial rights2. Proprietary rights3. Remedial rights4. Appraisal rightsf-2. Managerial Rights1. Definition2. Stockholders Meeting [Section 50]2-a. Kinds of Meeting [Section 49]2-b. Time of Meeting [Section 51]2-c. Place of Meeting [Sections 51, 93]2-d. Notice of Meeting2-e. Quorum [Sections 25, 52]1. Kinds of Voting2-a. Personal2-b. Representative or Proxy Voting [Section 58]1. Definition voting through an agent2. Revocable at will of the grantor [seeAlejandrino vs. De Leon, L-49043, 29 December 1943]2-c. Special Rules1. Voting Trust Agreement [Section 59;Bar, 1976;Bar, 1985;Bar, 1992]a. Definition an arrangement whereby the stockholders transfer their shares to a trustee who acquires the right to vote said sharesb. Limitations1. Not exceeding 5 years2. If created by virtue of a loan agreement, not exceeding 5 years but ipso facto terminated upon full payment of the loan3. Must be in writing, notarized and filed with the SEC2. Joint Ownership [Section 56]a. Co-ownershipb. Consent of all co-owners or joint owners are necessary3. Pledgors, Mortgagors [Section 55]4. Executors, Administrators, Receivers and other Legal Representations [Section 55]a. If appointed by the court, they can vote the sharesb. Without need of any written proxyf-3. Proprietary Rights1. Definition right as owner of the corporation [Bar, 1995]2. Coverage2-a. Right to dividend2-b. Right to liquidation2-c. Right of pre-emption [Section 39]1. Definition preferential right to subscribe additional shares of stocks proportionate to stockholding2. When Denieda. To comply with Filipino ownership requirementsb. To acquire property needed for corporate purposesc. To pay previously contracted debt1. Dividends [Section 43;Bar, 1987]3-a. Definition distribution of the earnings of the corporation to the stockholders3-b. Kinds1. Cash [Bar, 1987;Bar, 1989]2. Property3. Scrip4. Stock [Bar, 1991]5. Liquidating3-c. Retention of Surplus Profits3-d. Entitlement to Dividends1. Unpaid subscriptions [Sections 43, 72]2. Delinquent shares [Section 71]3. Treasury shares3-e. Determination of Dividends1. Cumulative2. Participating3. Cumulative and participating1. Liquidation5-a. Steps1. Dissolution2. Winding-up3. Termination5-b. Liquidating dividends5-c. Preferences of Preferred Stockholdersf-4. Remedial Rights [Bar, 1993]1. Individual Suit suit instituted by a stockholder for his own benefit against the corporation2. Representative Suit suit filed by a stockholder in his behalf and in behalf of other stockholders similarly situated with a common cause of action against the corporation3. Derivative Suit suit filed in behalf of the corporation by its stockholders upon a cause of action belonging to the corporation [Bar, 1960;Bar, 1975]4. Right to Inspection [Sections 74-75;Bar, 1976;Bar, 1988]4-a. Coverage [Section 74]1. Records of business transactions2. Minutes of Meetings3. Stock and Transfer book4-b. Requisites1. Exercised during reasonable hours on business day2. Person demanding right has not improperly used any information obtained through any previous examination of the books and records3. Demand is made in good faith or for a legitimate purpose [Africa vs. PCGG, 205 SCRA 39]1. Appraisal Right [Bar, 1976;Bar, 1983;Bar, 1987]5-a. Definition5-b. Instances1. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all the corporate property [Section 40]2. Incurring, creating or increasing bonded indebtedness [Section 38]3. Increase or decrease of capital stock [Section 81]4. Merger or consolidation5. Investment of corporate funds in another corporation [Section 42]6. Extension or shortening of corporate term [Section 37]5-c. Procedures [Sections 82]1. Written demand within 30 days after dissenting vote, otherwise waived2. If price is agreed upona. Corporation shall pay the value of the interest after corporate action is implemented or effectedb. Stockholder surrenders the shares3. If price cannot be agreed upona. Within 60 days from approval of corporate action, appraisal followsb. 3 Members of appraisal team whose findings/award are finalc. Within 30 days after award, payment shall be made by the corporation4. Payment shall be made only from the unrestricted retained earnings5-d. When Ineffective [Section 84]1. Withdrawal of demand2. Abandonment or rescission by the corporation of the proposed corporate action3. Disapproval by SEC of proposed corporate action4. Resolution by SEC on the non-entitlement of appraisal rightG. DISSOLUTION AND WINDING-UPg-1. Terminologies1. Dissolution [Bar, 1981]2. Winding up or Liquidation [Section 122]3. Terminationg-2. Causes of Corporate Dissolution [Section 117]1. Voluntary [Sections 118-120;Bar, 1963;Bar, 1968]1-a. Vote and resolution of majority of Board of Directors/Trustees and 2/3 of stockholders or members when no prejudice to creditors [Section 118]1-b. Judgment by the SEC after hearing on the Petition for Voluntary Dissolution where creditors are affected [Section 119]1-c. Amendment of Articles of Incorporation shortening corporate term [Section 120]1. Involuntary [Section 121]2-a. Expiration of corporate term [Section 11]2-b. Legislative enactment [Section 145]2-c. Failure to organize and commence business operations within 2 years from incorporation [Section 22]2-d. Judicial decree of Forfeiture [Sections 20, 134; Rule 66, Revised Rules of Court]2-e. Order of SEC [Section 121]H. FOREIGN CORPORATIONh-1. Definitions 1. Foreign corporation organized in a foreign country, provided that said foreign country allows Filipinos and domestic corporations to do business therein [Section 123]2. Doing business covers:2-a. Soliciting orders2-b. Service contracts2-c. Opening offices, whether called liaison offices or branches2-d. Appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period totaling 180 days or more2-e. Participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines2-f. Any other act or acts that imply a continuity of commercial dealings or arrangements and contemplate to that extent performance normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization [Section 3(d), R.A. 7042, Foreign Investment Act of 1991], PROVIDED, that the following shall not be deemed doing business:1. Mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business and/or the exercise of rights as such investor;2. Having a nominee director or officer to represent its interest in such corporation;3. Appointing a representative or distributor domiciled in the Philippines which transact business in its own name and for its own accounth-2. Suability of Foreign Corporations1. Doing Business in the Philippines1-a. With license may sue and be sued in the Philippines1-b. Without license cannot sue but may be sued in the Philippines [Section 133]2. Not Doing Business in the Philippines only on isolated transactions2-a. May sue2-b. May be sued [Facilities vs. de la Osa, 89SCRA 131]h-3. License1. Requirements1-a. Appointment of Resident Agent, either a Filipino or domestic corporation; and power of attorney to SEC to receive processes1-b. Must prove that the foreign corporations country grants reciprocal rights to Filipinos and Philippine corporation;1-c. Establish an office in the Philippines;1-d. Bring in its assets;2. In the event of insolvency, an undertaking the Filipino creditors will be preferred;1. Notice of six months should it desire to terminate operations;2. Franchise and patents must remain in the Philippines if possible;3. Must file a bond of P100,000.00, that within 6 months after each fiscal year, the SEC shall require the deposit of additional securities equivalent to 2% of the amount in excess of P5million of the gross incomeh-4. Grounds for Revocation of License1. Failure to file annual reports required by the Code2. Failure to appoint or maintain a resident agent3. Failure to inform SEC of change of resident agent or the latters change of address4. Failure to submit copy of amended articles or by-laws or articles of merger or consolidation5. Failure to pay taxes, impost or assessments6. Engaged in business not authorized by SEC7. Acting as dummy of a foreign corporation not licensed to do business in the PhilippinesI. NON-STOCK CORPORATIONi-1. Definition one where no part of its income is distributable as dividends to its members, trustees or officers, subject to the provisions of the Corporation Code on dissolution.i-2. Particularsa. Purposes a-1. Charitablea-2. Educationala-3. Religiousa-4. Professionala-5. Culturala-6. Recreationala-7. Fraternala-8. Literarya-9. Scientifica-10. Sociala-11. Civic serviceb. Right to Voteb-1. Right may be limited, broadened or denied to the extent specified in the Articles of Incorporation or by the By-Lawsb-2. Unless otherwise specified, each member regardless of class shall be entitled to one voteb-3. Voting by mail or other similar means by members of non-stock corporations may be authorized by its By-Lawsi-3. Non-Transferability of Membershipa. Membership and all rights arising therefrom are personal and non-transferableb. Except when authorized by the Articles of Incorporation or by the By-Lawsi-4. Election and Term of Trusteesa. May be more than 15 in numberb. Classified in such manner that the term of office of 1/3 of their number shall expire every yearc. Subsequent elections of trustees shall be held annually and trustees so elected shall have a term of 3 yearsi-5. Place of Meetingsa. May be held in a place outside the place where the principal place of the corporation is locateda. Must be within the Philippines [Section 93]J. CLOSE CORPORATIONSj-1. Definition -j-2. Particularsa. Requirements a-1. Number of stockholders not to exceed 20a-2. Restriction: pre-emption in favor of the stockholders or corporationa-3. Stocks cannot be listed in the stock exchange or be publicly offeredb. Prohibitions b-1. Mining companiesb-2. Oil companiesb-3. Stock exchangesb-4. Banksb-5. Insurance companiesb-6. Public utilityb-7. Educational institutionb-8. Other corporations declared to be vested with public interestj-3. Restrictions on Transfera. Must appeara-1. In the Articles of Incorporationa-2. In the By-Lawsa-3. On the Stock Certificatea. Pre-emptive right extends not only to unissued shares but also to treasury stocks [Section 102]PREPARED BY:ATTY. HENRY C. FILOTEO, CPAProfessorCORPORATION LAWCourse OutlineA. GENERAL PRINCIPLESa-1. Definition artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence [Section 2]a-2. Kinds of Businesses1. As to Organization1-a. Sole Proprietorship [Bar, 1949]1-b. Partnership [Article 1767, New Civil Code]1-c. Corporation1-d. Joint Venture categorized as a form of limited partnership since its period [Kohler,Dictionary for Accountants, 1975, p. 243; seeJ.M. Tuason & Co. vs. Bolanos, L-4935, 28 May 1954;Bar, 1987;Bar 1995]1. As to Activity2-a. Merchandising2-b. Manufacturing2-c. Service-concerneda-3. Attributes of a Corporation1. Artificial Being1-a. Separate entity concept [Bar, 1996]1. Liability for Torts [PNB vs. Court of Appeals, 83 SCRA 237]2. Liability for Damages [Bar, 1955]3. Liability for Crimes [Sia vs. People, 121 scra 655;People vs. Conception, 44 Phil. 126;Section 144]4. Constitutional rights -a. Due process [Albert vs. University Publication Co., 13 SCRA 84]b. Equal protection [Smith Bell & Co., vs. Natividad, 40 Phil. 136]c. Unreasonable search and seizures [Stonehill vs. Diokno, 20 SCRA 383]5. Theory of Concession [Tayag vs. Benguet Consolidated, Inc., 26 SCRA 242]1-b. Piercing the Veil of Corporate Entity1. Definition corporate fiction disregarded where the entity is formed or used for non-legitimate purposes [Bar, 1978;Bar 1985;Bar 1991]2. Reasons: When corporation is used toa. Defeat public convenienceb. Justify wrongc. Protect fraudd. Defend crimee. As mere alter ego [Umali vs. Court of Appeals, 189 SCRA 529]3. Casesa. Claparols vs. CIR[65 SCRA 613]b. Cruz vs. Dalisay[152 SCRA 482]c. Tan Boon Bee and Co. vs. Jarencio[163 SCRA 205]d. CIR vs. Norton & Harrison Company[11 SCRA 714]c.Philippine Veterans Investment Development Corporation vs. Court of Appeals[181 SCRA 669]d.Telephone Engineering and Service Co., Inc. vs. Workmens Compensation Commission[104 SCRA 354]4. Theory of Corporate Enterprise [Rationale: there can be no association without associates,Villanueva, p. 266]1. Created by Operation of Law3-a. Creation under the Corporation Code3-b. Creation under a Special Law1. Governed primarily by Charter creating it2. Corporation Code applies only on a suppletory manner [Section 4]3-c. De Facto Corporation [Section 20;Bar, 1989]1. Definition a corporation that actually exists as a corporate body, but which, because of failure to comply with some provisions of the law, has no legal right to corporate existence as against the state. Certificate of incorporation must be issued. This is distinguished with Corporation de Jure.2. Only the state can question the personality of the corporation. Right usurped is that of the sovereign, then it is the sovereign alone can question it through aQuo Warrantoproceedings represented by the Solicitor General3. Requisites a. Law authorizing incorporationb. Bona fide attempt to organizec. Assumption of corporate powers3-d. Corporation by Estoppel [Section 21]1. Defined applies to persons assuming to act as a corporation without authority to do so with respect to third persons who were prejudiced on the basis of their misrepresentations2. How Action Commenced Sued under the name by which they are generally or commonly known [Section 15, Rule 3,Revised Rules of Court]3. Liability liable as general partners1. Coveragea. Debtsa. Liabilitiesb. Damages1. Perpetual Succession3-a. Concept not immortality, but continuity of corporate life3-b. Corporate Term [Section 11]1. Duration not exceeding 50 years2. Renewable for another 50 years within 5 years prior to expiration [Alhambra Cigar vs. Securities and Exchange Com-mission, 24 SCRA 269]3-c. Extension or Shortening of Term [Section 37;Bar, 1988]3-d. Doctrine of Relation Delay in the approval of the application for extension of corporate term attributable to circumstances beyond the control of corporation would make the new charter related back to the day the corporation is entitled to have the charter issued [Vitug, p. 379]1. Powers, Attributes and Property Rights4-a. Express Powers 1. Section 36 of the Corporation Code and2. Purpose of corporation as stated in the Charter4-b. Implied Powers which are necessary in order to attain or execute the express powers4-c. Incidental Powers which can be exercised by the mere fact of its being a corporationa-4. Classes of Corporations [Bar, 1954]1. Statutory1-a. Stock Corporation [Sections 3 and 63] one where the ownership of the interest or equity is represented in the form of shares of stock1-b. Non-Stock Corporation [Sections 87-95] one where the interest or equity is in the form of membership1-c. Close Corporation [Sections 76-105]1-d. Foreign Corporation [Sections 123-136]1-e. Educational Corporation [Sections 106-107]1-f. Religious Corporation [Sections 109, 116]1. As to Number2-a. Corporation Sole [Sections 110-115;Bar, 1954]2-b. Corporation Aggregate1. As to Purpose3-a. Ecclesiastical3-b. Eleemosynary [Bar, 1967]3-c. Lay3-d. Public 1. Defined one formed or organized for the government of a portion of a State for the purpose of promoting the general good and welfare [Section 3,Act. No. 1456]2. Constitutional Prohibition - The Congress shall not, except by general law, provide for the formation, organization or regulation of private corporations. Government owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability [Section 16, Article XII, 1987 Constitution]3. Corporation Code applies on a suppletory manner [Section 4]4. Quasi-Public corporation refers to a private corporation that is franchised or licensed by the government to render services involving performance of public utilities5. Public-Quasi corporation refers to a public corporation engaged in the performance of public or governmental function but not being the State or its political corporation1. As to Nationality4-a. Tests of Nationality [Bar, 1957]1. Incorporation Test2. Control Test [seeFilipinas de Seguros vs. Christern, Huenefeld & Co., Inc. G.R. L-2294, 25 May 1951]3. Residence Testa. Generally fixed by law creating themb. Place where legal representation is established or where principal functions are exercised4-b. Classes1. Domestic Corporation those organized in accordance with B.P. 682. Foreign Corporation those organized under a foreign law that allows Filipino citizens and corporations to do business in their state or country [Section 123]4-c.Grandfather Rule[SEC Opinion, 4 May 1987]1. As to Existence5-a. De Jure5-b. De Facto [Section 20;Bar, 1955;Bar, 1959]5-c. Corporation by Estoppel [Section 21;Bar, 1955;Bar, 1973]1. As to Membership6-a. Open Corporation6-b. Close Corporation one whose Charter provides1. All corporate stocks issued must be held of record by not more than 20 persons2. All corporate stocks issued are subject to certain restrictions on transfer3. Stocks are not listed in any stock exchange [Section 96]1. As to Relation with Other Corporations7-a. Parent7-b. Subsidiarya-5. Four Basic Advantages of a Corporation [Bar, 1953]1. Separate juridical personality2. Limited liability of investors1. Free transferability of units of ownership2. Centralized managementa-6. Components of a Corporation1. Incorporators [Bar, 1952]1-a. Definition those stockholders or members mentioned in the Articles of Incorporation as originally forming the corporation [Section 5]1-b. Qualifications [Section 10]1. Majority are Philippine residents2. Natural persons3. Of legal ages4. Not less than 5 not more than 155. Owner or subscriber of at least 1 share of stock1. Corporators2-a. Definition those composing the corporation, whether stock or non-stock [Section 126;Bar, 1952]2-b. Kinds 1. Stockholders corporators of stock corpo-rations2. Members corporators of non-stock corpo-rationsa-7. Capital Structure1. Terminologies1-a. Capital Stock amount subscribed and paid in by the stockholders or secured to be paid in upon which the corporation is to conduct its operations [Bar, 1957;Bar, 1964]1.b. Authorized Capital Stock total amount of the capital stock which it can raise [Bar, 1964]1-c. Subscribed Capital Stock amount of authorized capital which has already been subscribed [Bar, 1964]1-d. Stated Capital1-e. Legal Capital refers to the amount of funds received by the corporation in payment of the shares of stocks. This shall be held in trust for the creditors of the corporation under the Trust Fund Doctrine.1-f. Paid-up Capital amount of subscription that has already been paid [Bar, 1964]1. Legal Requirement2-a. Pre-Incorporation [Sections 12-13]1. 25% of authorized capital stock subscribed2. 25% of subscribed capital stock paid3. In no case less thanP5,000 [Section 13]2-b. Post-Incorporation [Section 38]1. Applies to increases in capitalization2. 25% of increase capital stock subscribed3. 25% of subscribed capital stock paid4. Treasurers Affidavit1. Classifications of Shares [Section 6]3-a. Preferred shares those which entitles the owner certain preferences [Bar, 1949]1. As to Dividends2. As to Liquidation3-b. Common shares those ordinary stocks of a corporation which entitles the owner to pro rata dividend without any priority or preference over any other stockholders [Bar, 1949]3-c. Par Value shares those whose value is fixed in the Articles of Incorporation [Bar, 1950]3-d. No-Par Value shares [Bar, 1958;1970;Bar, 1984]1. Typesa. With stated valueb. Without stated value1. Valuation of Shares of Stocks [Section 62]a. Articles of Incorporationb. Board of directors pursuant to an authority conferred by the Charter or by the By-Lawsa. Majority vote of the stockholders1. Corporations Prohibited to Issue No-Par Value Shares [Bar, 1958,Bar, 1959]a. Banksb. Insurance companiesc. Trust companiesa. Building & trust associationsb. Public utilities3-e. Voting shares [Bar, 1984]3-f. Non-Voting shares1. Treasury shares [Section 9]2. Preferred shares [Section 6]3. Redeemable shares [Ibid]3-g. Redeemable shares refer to shares that may be purchased or taken up by the corporation upon the expiration of a fixed period regardless of the existence of unrestricted retained earnings [Section 8]3-h. Convertible shares those which give the holder the option to convert the same into another class of shares3-i. Shares in escrow shares deposited with a third person to be delivered to the stockholder upon compliance with certain conditions3-j. Treasury shares [Bar, 1992]1. Definition shares issued and fully paid but subsequently reacquired by the issuing corporation [Sections 9]2. When Necessary [Bar, 1949]a. Elimination of fractional sharesb. Collection or compromise of unpaid subscriptionsc. Payment to dissenting/withdrawing stockholders [Section 41]3-k. Delinquent shares those which were declared as such3-l. Founders shares [Section 7]1. Definition - shares of stocks classified as such in the Articles of Incorporation given to the founding stockholders2. They enjoy certain rights and privileges not available to other classes of stocks3. If privilege consists of the exclusive right to vote and be voted upon as Director, it must be for a period not exceeding five (5) years3-m. Outstanding shares shares fully paid and already in the hands of the stockholders3-n. Issued shares [Section 137]3-o. Watered shares shares issued for no or less than their par or stated value [Bar, 1993]4. Issuance of Stock Certificates [Section 64]4-a. Ways of issuance1. Subscription refers to any contract for the acquisition of unissued stock in an existing corporation or corporation still to be formed [Section 60]a. Pre-Incorporation subscription of stocks in a corporation still to be formed irrevocable for a period of 6 months from date of subscription [Section 61;Bar, 1979]b. Post-Incorporation subscription of stocks in a corporation after its formation2. Exchange or other onerous transfers3. No promissory notes, no future services1. Issued only upon full payment [Bar, 1976;Bar, 1975;Bar 1979;Bar, 1988]2. Cannot be set-off against unpaid salary [Apodaco vs. NLRC, 172 SCRA 442;Article 102, Labor Code of the Philippines;Bar, 1988]4-b. Consideration for Issuance [Section 62]1. Cash2. Property, whether tangible or intangible3. Labor performed or services actually rendered [Bar, 1952]1. Previously incurred indebtedness2. Amounts transferred from unrestricted retained earnings to stated capital3. Reclassification or conversion4-c. Collecting Subscriptions1. Determination of Due Date [Section 67]a. Subscription contractb. In the absence, at any time from the date specified in the call by the Board of Directors2. Effect of Non-Payment on Due Datea. Entire balance becomes due and payableb. After the lapse of 30 days from due date, stocks become delinquent. As such, holder lose all rights due as a stockholder except the right to dividends [Section 71]3. Modes of Collection [Bar, 1988]a. Judicial remedy ordinary suit for collection of sum of money [Section 70]b. Extrajudicial remedy - Delinquency sale [Section 68;Bar, 1969;Bar, 1997]1. Resolution2. Notice of Delinquency Sale3. Publication4. Public Auction5. Sale to highest bidder or treasury sharesc. Minimum Amount Due1. Balance on subscription2. Accrued interest, if any3. Advertisement costs4. Expenses of saled. Application of Dividends [Section 71]1. Interests on Unpaid Subscriptions [Section 66]a. General Rule: No interest payableb. Exception1. By-Laws provision2. At the rate prescribed in the By-Laws3. In the absence of the rate prescribed therein, legal rate4-d. Right of Pre-Emption [Bar, 1982;Bar, 1983;Bar 1984]1. Definition right of the stockholder to subscribe additional shares of stocks before the same can be offered to the public in proportion to their respective shareholdings2. When Right Deniable [Section 39]a. Denial by the Charterb. Shares issued to comply with legal Filipino ownership requirementsc. Shares issued in exchange for property needed or in payment of previously contracted indebtedness in accordance with the approval of 2/3 of stockholders or members3. Coveragea. Only shares originally offered for sale to the publicb. Does not include1. Shares previously offered but not sold2. Treasury shares4-e. Issuance of New Certificates [Section 73]1. Coveragea. Lostb. Destroyedc. Stolen1. Procedures [Bar, 1969]a. Affidavit of loss of stockholderb. Verification by the corporationc. Publication of Notice of Loss1. If no bond filed by stockholder, wait until lapse of one year from last publication2. If bond is filed by stockholder, new certificates may be issued even prior to the one year perioda. If Contested 1. Case is filed without, wait for final decision2. If no case filed, file an action for Interpleader5. Transfer of Shares of Stocks [Bar, 1981;Bar, 1994;Bar, 1995]5-a. Synopsis1. Open corporation2. Close corporation5-b. Manner of Transfer5-c. Assignment5-d. Pledge1. Pledgor entitled to the rights2. If registered in corporate books without any reservation in writing, pledgee entitled to the rights [Section 55]5-e. Mortgage1. Mortgagor entitled to the rights2. If registered in corporate books without any reservation in writing, mortgagor entitled to the rights [Ibid]B. INCORPORATION AND ORGANIZATIONb-1. Definition1. Incorporation covers all steps and processes from the time of the application for incorporation until the issuance of the Certificate of Incorporation2. Organization2-a. Definition refers to the acts of starting the operations of the corporation as a going concern and the establishment of machineries to run its operations2-b. Steps1. Adoption of By-Lawsa. Pre-incorporationb. Post-incorporation one month from issuance of Certificate [Section 46]2. Election of corporate Directors3. Election of corporate Officersb-2. Terminologies1. Promotion the initial and pre-incorporation steps until the actual formation of the corporation [Bar, 1949]2. Primary franchise2-a. Definition - refers to the right to exist as a corporation2-b. Characteristics1. Vested in the individuals who compose the corporation and not in the corporation itself2. Incapable of being transferred1. Secondary franchise3-a. Definition - refers to the right to conduct the business of the corporation3-b. Characteristics1. Vested in the corporation itself2. Capable of being transferred1. Concession theory Registration and issuance of the Certificate of Incorporation signals the birth of the corporations personality [Vitug, p. 391]2. Articles of Incorporation basic document for the registration of a corporation3. Corporation By-Laws set of rules or guidelines for the internal operation of the corporation4. Certificate of Incorporationb-3. Steps in Incorporation1. Promotion 1-a. Definition - the conduct of a project or feasibility study that interests prospective investors to set-up a corporation business.1-b. Who Undertakes - This is undertaken by a person called the promoter for a fee or consideration1-c. Effect binding only between the promoter and the parties and prospective investors who signed and executed the promotion contract. This is binding only upon the corporation if, after its creation, the promotion contract was adopted by the corporation by virtue of a Board Resolution2. Drafting and Execution in compliance with the compliance with the requirements [Sections 13, 14, 15, 61, 139-141]3. Issuance of Certificate of Incorporation [Section 19]b-4. Articles of Incorporation [Bar, 1990]1. Definition charter of the corporation1. Contents [Sections 14, 15]2-a. Name of corporation [Section 18;Republic Planters Bank vs. Court of Appeals,216 SCRA 738;Bar, 1976]2-b. Purpose/purposes [Bar, 1976;Bar, 1977]2-c. Principal place of business2-d. Term of existence [Section 11]2-e. Incorporators [Section 10]2-f. Number of Directors/Trustees2-g. Acting or Temporary Directors/Trustees2-h. Stock Corporation data [Bar, 1984]2-i. Non-stock corporation data2-j. Other matters3. Attachments3-a. Treasurers Affidavit3-b. Favorable recommendation of appropriate government agency3-c. Amendments of Articles [Section 16]1. By vote2. By written assent4. Purpose of Charter4-a. Contract between State and the corporation4-b. Contract between the corporation and corporators4-c. Contract between State and the corporators [Government of the Philippine Islands vs. Manila Railroad Co., 52 Phil. 699]5. Other Documents5-a. Verification slip contains the corporate name duly verified and certified to by the records section of the Securities and Exchange Commission5-b. Letter-Undertaking contains the undertaking of the corporate secretary or treasurer of the corporation to change the corporate name in the event that the same has already been used or appropriated by another corporation, person or firm5-c. Bank Certificate shows the amount of the paid-up capital in the name of the Treasurer in trust for the corporation which is in the process of incorporation5-d. Letter-Authority contains the express authority given by the treasurer of the corporation in favor of the Central Bank and/or Securities and Exchange Commission to examine the account involving the paid-up capital5-e. Treasurers Affidavit 5-f. Statement of Assets showing the assets of the corporation in the form of the amount of subscription, the paid-up capital and the balance on account of the subscription5-g. Registration Sheet contains details concerning the names of incorporators, the kind and nature of corporation, names and addresses of directors and officers, as well as data of stock capitalization6. Grounds for Disapproval5-a. Non-conformity with the prescribed form5-b. Patently illegal or immoral purpose5-c. False Treasurers Affidavit5-d. Non-compliance with required Filipino ownership5-e. Non-submission of required favorable recommendation of appropriate government agencyb-5. Corporate By-Laws1. Definition set of rules or guidelines for the internal operation of the corporation2. Adoption of By-Laws [Section 46]2-a. When adopted1. Pre-incorporation2. Post incorporation within 1 month from issuance of Certificate of Incorporation2-b. How adopted affirmative vote of majority of the corporators1. Purposes defines the3-a. Relation between the stockholders and the corporation3-b. Relation between the stockholders interse3-c. Relation between the Board of Directors/Trustees and Officers and the corporation3-d. Relation between the Board of Directors/Trustees and Officers and the stockholders3-e. Particulars for stockholders and Board of Directors/Trustees meetings3-f. Other internal operations of the corporation4. Elements of Valid By-Laws4-a. Consistent with general laws4-b. Consistent with public policy and public welfare4-c. Reasonable4-d. Consonance with the Charter and the nature, purposes and objects of the corporation5. Contents [Section 47]5-a. Time, place and manner of calling and conducting regular or special meetings of directors and trustees5-b. Time and manner of calling and conducting regular or special meetings of stockholders or members5-c. Required quorum in meetings of stockholders or members and the manner of voting therein5-d. Form for proxies of stockholders and members and the manner of voting them5-e. Qualifications, duties and compensation of directors or trustees, officers and employees;5-f. Time for holding annual election of directors or trustees and the mode or manner of giving notice thereof5-g. Manner of election or appointment and the term of office of all officers other than directors or trustees5-h. Penalties for violation of by-laws5-i. Manner of issuing stock certificates5-j. Other matters necessary for the proper or convenient transaction of corporate business and affairs6. Amendments [Section 48]6-a. Who can exercise1. Majority of the board of directors or trustees and majority of the corporators2. May be delegated to the board of directors or trustees by 2/3 votes of the corporators. Power delegated may be revoked by majority votes of the corporators6-b. Procedures1. Attach amended By-Laws to original and Articles of Incorporation2. Copy of amended By-Laws certified under oath by corporate secretary and majority of board of directors or trustees filed with the Securities and Exchange Commissionb-6. Effects of 1. Non-Organization [Section 22]1-a. Coverage failure to organize within two (2) years counted from the issuance of the Certificate of Incorporation for causes within its control1-b. Effect corporate powers ipso facto cease to exist [Bar, 1979]1. Continuous Inoperation [Section 22]2-a. Coverage continuous inoperation for five (5) years for causes within its control2-b. Effect ground for the suspension or revocation of its corporate franchiseC. CORPORATE MANAGEMENTc-1. Levels of Control in Corporate Heirarchy [Citibank NA vs. Chua, G.R. No. 102300, 17 March 1993]1. Board of Directors/Trustees2. Corporate Officers3. Stockholdersc-2. Board of Directors/Trustees [Section 23;Bar, 1975]1. Definition repository of corporate powers [Ramirez vs. Orientalist Company, 38 Phil. 634;Bar, 1975]2. Number [Section 14]3. Qualifications [Section 23;Bar, 1946;Bar, 1965]3-a. Natural persons3-b. Legal age3-c. Not disqualified by law3-d. Owner of at least one share of stock [Bar, 1984;Bar, 1987]3-e. Majority are residents1. Disqualifications [Section 27]4-a. Convicted by final judgment of an offense punishable by an imprisonment for a period exceeding six (6) years4-b. Convicted by final judgment of an offense for violation of the Corporation Code committed within five (5) years prior to his election or appointment1. Elections [Section 24]5-a. Manner1. Viva voce2. By ballot when requested by any voting shareholder3. In person or by proxy5-b. Requirements1. Proper notice2. Attended by majority of stockholders5-c. Voting1. Cumulative [Bar, 1951]a. Purpose to secure representation of minority stockholders in the Board of Directors/Trusteesb. How Made Number of votes is to be determined by multiplying the number of directors to be voted upon and the number of shares2. Individual1. Removal [Section 28]6-a. Instances1. For cause2. Without cause6-b. Requirements1. Vote of stockholders representing 2/3 of the outstanding capital stock or 2/3 votes of the members entitled to vote2. Removal without cause should not deprive minority stockholders or members of the right of representation [Bar, 1983;Bar, 1991]1. Vacancies7-a. Causes1. Removal [Section 28]2. Expiration of term3. Increase in number4. Other causes such as death, resignation, retirement7-b. How Filled Up [Section 29]1. By Board if still constituting quorum in vacancies resulting from causes other than removal, expiration of term or increase in number2. By stockholders in an election called for such purpose if vacancy is due to:a. Removalb. Expiration of termc. Increase in numbera. Remaining members of the Board no longer constitute quorum1. Meetings8-a. Requisites of Valid Board Meetings1. Proper Notice [Bar, 1990]2. Meeting of Board duly assembled3. Existence of a quorum4. Decision of the majority of the quorum8-b. Quorum [Bar, 1970]1. By Laws provision2. Majority of the number of directors or trustees as fixed by the Articles of Incorporation8-c. Particulars [Section 53]1. General Rules By-Laws provision2. Regular Meetingsa. Frequency monthlyb. Place in or outside the Philippines [Bar, 1987]c. Notice at least one day prior to the schedule3. Special Meetingsa. Frequency as the need arisesb. Place in or outside the Philippinesc. Notice at least one day prior to the schedule8-d. Cases1. Calica vs. Labatique, 55 OG 6472. Ingersoll vs. Malabon Sugar Company,53 Phil. 7451. Compensation [Section 30;Bar, 1987]9-a. General Rule : Only reasonable per diems9-b. Exception1. By-Laws2. Vote of stockholders representing at least a majority of the outstanding capital stock or a majority of the members9-c. Limitation not to exceed ten percent (10%) of the net income before income tax of the corporation during the preceding year [Bar, 1991]c-3. Corporate Officers [Bar, 1995]1. Types1-a. Statutory1. President [Bar, 1948;Bar, 1950;Bar, 1960;Bar, 1971;Bar, 1993]a. Must be a directorb. Not a secretary nor treasurer at the same time2. Secretarya. Must be a citizenb. Must be a resident of the Philippines3. Treasurer1-b. Non-Statutory1. Rule other officers may be provided in the By-Laws2. Casesa. General Manager function is only to supervise and conduct the ordinary business of the corporation [seeLiboro vs. Rogers, L-11046, 30 October 1959]b.Board of Liquidators vs. Kalaw, 20 SCRA 989]1. How Elected majority of all the members of the Board of Directors or Trustees2. Compensation3-a. Directors [Section 30]3-b. Officer-Directorc-4. Executive Committee [Section 35]1. Creation by virtue of By-Laws provision2. Composition not less than 3 members of the Board of Directors/Trustees3. Delegable Acts all acts or matters within the competence of the Board of Directors/Trustees except when explicitly prohibited by the Corporation Code or the By-Laws1. Non-delegable Acts4-a. Approval of any action requiring stockholders approval4-b. Filling-up of vacancies in the Board of Directors or Trustees4-c. Amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable4-c. Distribution of cash dividends to stockholdersc-5. Management Contracts [Section 44]1. Creation1-a. Resolution signed by majority of the Board1-b. Majority vote of stockholders or members1. Requirements2-a. Votes representing 2/3 of the outstanding capital stock or 2/3 of the members2-b. In case of1. Interlocking stockholders owns 1/3 interest of the managing corporation2. Interlocking directors -1. Limitationsc-6. Ultra Vires Corporate Acts [Section 45]1. Definition2. Kinds of Ultra Vires Acts3. Effectsc-7. Corporate ReportsD. CORPORATE POWERSd-1. Classification1. Express -2. Implied3. Incidentald-2. Voting Requirements1. 2/3 of Stockholders and Majority of Board of Directors1-a. Extension or shortening of corporate term [Section 37;Bar, 1953]1-b. Increase or decrease of capital stock [Section 38;Bar, 1947;Bar, 1982;Bar, 1987]1-c. Increase, incur or create bonded indebtedness [Section 38;Bar, 1956]1-d. Sale, barter, exchange or other disposition of all or substantially all corporate assets [Section 40]1-e. Investment of corporate funds to another corporation [Section 42;Bar, 1947]1-f. Investment of corporate funds to other ventures [Section 42;Bar, 1982;Bar, 1996]1-g. Declaration of stock dividends [Section 43;Bar, 1982;Bar, 1990]1-h. Enter into management contracts [Section 44;Bar, 1974]1-i. Ratification of contracts with self-dealing directors [Section 32]1-j. Ratification of contracts with inter-locking directors [Section 33]1-k. Merger or consolidation [Section 77]1-l. Voluntary dissolution of corporations [Section 118]1. Majority of the Stockholders2-a. Fixing value of no-par shares [Section 62]2-b. Adoption, amendment and repeal of by-laws [Section 46]2-c. Fixing compensation of the board of directors [Section 30;Bar, 1987;Bar, 1991]d-3. Instances where Non-Voting Shares can Vote1. Amendment of Articles [Section 16]2. Adoption and amendment of By-Laws [Bar, 1981]3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all corporate assets [Section 40;Bar, 1980;Bar, 1988]4. Incurring, creating or increasing bonded indebtedness [Section 38]5. Increase or decrease of capital stock [Section 38]6. Merger or consolidation [Sections 76-80]7. Investment of corporate funds [Section 42]d-4. Appraisal Right1. Definition2. When Exercisable3. Manner of ExerciseE. CORPORATE LIABILITYe-1. Kinds of Liability1. Corporate liability2. Officers liability [Bar, 1989;Bar, 1995]3. Directors liabilitye-2. Corporate Liability1. Usual and normal transactions2. Torts3. Crimese-3. Liability of Director/Trustee1. Personal Liability [Section 21;Bar, 1996]1-a. Business opportunity theory [Section 34;Bar, 1985;Bar, 1991]1. When Applicable a director or trustee acquires for himself a business opportunity belonging to the corporation whereby he obtained profits to the prejudice of the corporation2. Effectsa. Account for the profits to the corporationb. Personally bear the losses3. Exception: Act is ratified by 2/3 of the stockholders or members1-b. Inter-locking Directors [Section 33]1. Where applicable contracts entered into between two corporations having the same director/s or trustee/s2.1-c. Self-Dealing Director [Section 32;Bar, 1995]1. Coverage2. When Contract is Valida. Presence of director or trustee not necessary to constitute quorumb. Vote of the director or trustee not necessary to approve the contractc. Contract is fair and reasonabled. If he is an officer at the same time, the contract has been previously authorized by the Board of Directors or Trustees3. Effects on Contractsa. As a rule, voidable at the option of the corporationb. If presence of director or trustee helped in constituting quorum or his vote helped in the approval of the contract, the same is voidable subject to ratification by 2/3 of stockholders or members1. Solidary Liability2-a. Coverage [Section 31]1. Patently unlawful acts of the corporation2. Gross negligence or bad faith in directing affairs of the corporation [Bar, 1968]3. Acquisition of personal or pecuniary interest in conflict with duty as director4. Watered stocks [Section 65]2-b. To Whom Liable1. Corporation2. Stockholders or members3. Other persons2-c. Persons Liable Directors/Trustees1. Who willfully and knowingly voted or assented2. Who committed gross negligence3. Who were guilty of bad faith1. Inter-locking Directors [Section 33;Bar, 1950]3-a. Definition directors of one corporation who are at the same time directors of another corporation3-b. Coverage3-c. Effect on Contracts3-d. When Contract Valid [Bar, 1995]1. Corporation where Inter-locking Director has Substantial Interesta. No fraud involvedb. Fair and reasonablec. Quorum and required votes; otherwise there is a need for ratification2. Corporation where Inter-locking Director has Nominal Interesta. Presence in BOD meeting is not necessary to constitute quorumb. Vote unnecessary for approval of the corporate actc. Fair and reasonable1. Doctrines4-a. Doctrine of Limited Liability shields the corporators from corporate liability beyond their agreed contribution to the capital or shareholding4-b. Doctrine of Immunity protects a person acting for and in behalf of the corporation from being personally liable for his authorized acts [Bar, 1988], This is otherwise known as the business judgment rule [Bar, 1986].F. RIGHTS OF STOCKHOLDERSf-1. Classification of Rights [Bar, 1995]1. Managerial rights2. Proprietary rights3. Remedial rights4. Appraisal rightsf-2. Managerial Rights1. Definition2. Stockholders Meeting [Section 50]2-a. Kinds of Meeting [Section 49]2-b. Time of Meeting [Section 51]2-c. Place of Meeting [Sections 51, 93]2-d. Notice of Meeting2-e. Quorum [Sections 25, 52]1. Kinds of Voting2-a. Personal2-b. Representative or Proxy Voting [Section 58]1. Definition voting through an agent2. Revocable at will of the grantor [seeAlejandrino vs. De Leon, L-49043, 29 December 1943]2-c. Special Rules1. Voting Trust Agreement [Section 59;Bar, 1976;Bar, 1985;Bar, 1992]a. Definition an arrangement whereby the stockholders transfer their shares to a trustee who acquires the right to vote said sharesb. Limitations1. Not exceeding 5 years2. If created by virtue of a loan agreement, not exceeding 5 years but ipso facto terminated upon full payment of the loan3. Must be in writing, notarized and filed with the SEC2. Joint Ownership [Section 56]a. Co-ownershipb. Consent of all co-owners or joint owners are necessary3. Pledgors, Mortgagors [Section 55]4. Executors, Administrators, Receivers and other Legal Representations [Section 55]a. If appointed by the court, they can vote the sharesb. Without need of any written proxyf-3. Proprietary Rights1. Definition right as owner of the corporation [Bar, 1995]2. Coverage2-a. Right to dividend2-b. Right to liquidation2-c. Right of pre-emption [Section 39]1. Definition preferential right to subscribe additional shares of stocks proportionate to stockholding2. When Denieda. To comply with Filipino ownership requirementsb. To acquire property needed for corporate purposesc. To pay previously contracted debt1. Dividends [Section 43;Bar, 1987]3-a. Definition distribution of the earnings of the corporation to the stockholders3-b. Kinds1. Cash [Bar, 1987;Bar, 1989]2. Property3. Scrip4. Stock [Bar, 1991]5. Liquidating3-c. Retention of Surplus Profits3-d. Entitlement to Dividends1. Unpaid subscriptions [Sections 43, 72]2. Delinquent shares [Section 71]3. Treasury shares3-e. Determination of Dividends1. Cumulative2. Participating3. Cumulative and participating1. Liquidation5-a. Steps1. Dissolution2. Winding-up3. Termination5-b. Liquidating dividends5-c. Preferences of Preferred Stockholdersf-4. Remedial Rights [Bar, 1993]1. Individual Suit suit instituted by a stockholder for his own benefit against the corporation2. Representative Suit suit filed by a stockholder in his behalf and in behalf of other stockholders similarly situated with a common cause of action against the corporation3. Derivative Suit suit filed in behalf of the corporation by its stockholders upon a cause of action belonging to the corporation [Bar, 1960;Bar, 1975]4. Right to Inspection [Sections 74-75;Bar, 1976;Bar, 1988]4-a. Coverage [Section 74]1. Records of business transactions2. Minutes of Meetings3. Stock and Transfer book4-b. Requisites1. Exercised during reasonable hours on business day2. Person demanding right has not improperly used any information obtained through any previous examination of the books and records3. Demand is made in good faith or for a legitimate purpose [Africa vs. PCGG, 205 SCRA 39]1. Appraisal Right [Bar, 1976;Bar, 1983;Bar, 1987]5-a. Definition5-b. Instances1. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all the corporate property [Section 40]2. Incurring, creating or increasing bonded indebtedness [Section 38]3. Increase or decrease of capital stock [Section 81]4. Merger or consolidation5. Investment of corporate funds in another corporation [Section 42]6. Extension or shortening of corporate term [Section 37]5-c. Procedures [Sections 82]1. Written demand within 30 days after dissenting vote, otherwise waived2. If price is agreed upona. Corporation shall pay the value of the interest after corporate action is implemented or effectedb. Stockholder surrenders the shares3. If price cannot be agreed upona. Within 60 days from approval of corporate action, appraisal followsb. 3 Members of appraisal team whose findings/award are finalc. Within 30 days after award, payment shall be made by the corporation4. Payment shall be made only from the unrestricted retained earnings5-d. When Ineffective [Section 84]1. Withdrawal of demand2. Abandonment or rescission by the corporation of the proposed corporate action3. Disapproval by SEC of proposed corporate action4. Resolution by SEC on the non-entitlement of appraisal rightG. DISSOLUTION AND WINDING-UPg-1. Terminologies1. Dissolution [Bar, 1981]2. Winding up or Liquidation [Section 122]3. Terminationg-2. Causes of Corporate Dissolution [Section 117]1. Voluntary [Sections 118-120;Bar, 1963;Bar, 1968]1-a. Vote and resolution of majority of Board of Directors/Trustees and 2/3 of stockholders or members when no prejudice to creditors [Section 118]1-b. Judgment by the SEC after hearing on the Petition for Voluntary Dissolution where creditors are affected [Section 119]1-c. Amendment of Articles of Incorporation shortening corporate term [Section 120]1. Involuntary [Section 121]2-a. Expiration of corporate term [Section 11]2-b. Legislative enactment [Section 145]2-c. Failure to organize and commence business operations within 2 years from incorporation [Section 22]2-d. Judicial decree of Forfeiture [Sections 20, 134; Rule 66, Revised Rules of Court]2-e. Order of SEC [Section 121]H. FOREIGN CORPORATIONh-1. Definitions 1. Foreign corporation organized in a foreign country, provided that said foreign country allows Filipinos and domestic corporations to do business therein [Section 123]2. Doing business covers:2-a. Soliciting orders2-b. Service contracts2-c. Opening offices, whether called liaison offices or branches2-d. Appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period totaling 180 days or more2-e. Participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines2-f. Any other act or acts that imply a continuity of commercial dealings or arrangements and contemplate to that extent performance normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization [Section 3(d), R.A. 7042, Foreign Investment Act of 1991], PROVIDED, that the following shall not be deemed doing business:1. Mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business and/or the exercise of rights as such investor;2. Having a nominee director or officer to represent its interest in such corporation;3. Appointing a representative or distributor domiciled in the Philippines which transact business in its own name and for its own accounth-2. Suability of Foreign Corporations1. Doing Business in the Philippines1-a. With license may sue and be sued in the Philippines1-b. Without license cannot sue but may be sued in the Philippines [Section 133]2. Not Doing Business in the Philippines only on isolated transactions2-a. May sue2-b. May be sued [Facilities vs. de la Osa, 89SCRA 131]h-3. License1. Requirements1-a. Appointment of Resident Agent, either a Filipino or domestic corporation; and power of attorney to SEC to receive processes1-b. Must prove that the foreign corporations country grants reciprocal rights to Filipinos and Philippine corporation;1-c. Establish an office in the Philippines;1-d. Bring in its assets;2. In the event of insolvency, an undertaking the Filipino creditors will be preferred;1. Notice of six months should it desire to terminate operations;2. Franchise and patents must remain in the Philippines if possible;3. Must file a bond of P100,000.00, that within 6 months after each fiscal year, the SEC shall require the deposit of additional securities equivalent to 2% of the amount in excess of P5million of the gross incomeh-4. Grounds for Revocation of License1. Failure to file annual reports required by the Code2. Failure to appoint or maintain a resident agent3. Failure to inform SEC of change of resident agent or the latters change of address4. Failure to submit copy of amended articles or by-laws or articles of merger or consolidation5. Failure to pay taxes, impost or assessments6. Engaged in business not authorized by SEC7. Acting as dummy of a foreign corporation not licensed to do business in the PhilippinesI. NON-STOCK CORPORATIONi-1. Definition one where no part of its income is distributable as dividends to its members, trustees or officers, subject to the provisions of the Corporation Code on dissolution.i-2. Particularsa. Purposes a-1. Charitablea-2. Educationala-3. Religiousa-4. Professionala-5. Culturala-6. Recreationala-7. Fraternala-8. Literarya-9. Scientifica-10. Sociala-11. Civic serviceb. Right to Voteb-1. Right may be limited, broadened or denied to the extent specified in the Articles of Incorporation or by the By-Lawsb-2. Unless otherwise specified, each member regardless of class shall be entitled to one voteb-3. Voting by mail or other similar means by members of non-stock corporations may be authorized by its By-Lawsi-3. Non-Transferability of Membershipa. Membership and all rights arising therefrom are personal and non-transferableb. Except when authorized by the Articles of Incorporation or by the By-Lawsi-4. Election and Term of Trusteesa. May be more than 15 in numberb. Classified in such manner that the term of office of 1/3 of their number shall expire every yearc. Subsequent elections of trustees shall be held annually and trustees so elected shall have a term of 3 yearsi-5. Place of Meetingsa. May be held in a place outside the place where the principal place of the corporation is locateda. Must be within the Philippines [Section 93]J. CLOSE CORPORATIONSj-1. Definition -j-2. Particularsa. Requirements a-1. Number of stockholders not to exceed 20a-2. Restriction: pre-emption in favor of the stockholders or corporationa-3. Stocks cannot be listed in the stock exchange or be publicly offeredb. Prohibitions b-1. Mining companiesb-2. Oil companiesb-3. Stock exchangesb-4. Banksb-5. Insurance companiesb-6. Public utilityb-7. Educational institutionb-8. Other corporations declared to be vested with public interestj-3. Restrictions on Transfera. Must appeara-1. In the Articles of Incorporationa-2. In the By-Lawsa-3. On the Stock Certificatea. Pre-emptive right extends not only to unissued shares but also to treasury stocks [Section 102]PREPARED BY:ATTY. HENRY C. FILOTEO, CPAProfessor

Corporation Law Course Syllabus (Complete)

Part I General Provisions

A. Corporation, defined (Sec. 2)

Case: a. Tayag v. Benguet Consolidated, 26 SCRA 242 b. Torres v. Court of Appeals, 278 SCRA 793 c. Philippine Stock Exchange, Inc. v. Court of Appeals, 281 SCRA 232

1. Art. XII Section 16, 1987 Philippine Constitution Case:a. Feliciano v. COA, GR No. 147402, January 14, 2004

2. Attributes of a Corporation3. Similarities and Distinctions between Contract of Partnership and Corporations4. Corporations Created by Special Laws or Charter

Cases:a. National Coal Co. v. Collector of Internal Revenue, 46 Phil. 583b. Marilao Water Consumers Association, Inc. v. IAC, 201 SCRA 437

B. Classification of corporations

1. Under the Corporation Code (Sec. 3)2. Sole and Aggregate3. Ecclesiastic and Lay4. Eleemosynary and Civil5. Domestic and Foreign6. De jure and de facto corporations

6.1 Requisite of De Facto Corporation6.2 Quo Warranto

Cases:

a. Sawadjaan v. Court of Appeals, G.R. No. 141735, June 8, 2005

7. Close and Open Corporation8. Parent, Subsidiary, and Affiliated9. Private and Public10. Corporation by Prescription and Corporation by Estoppel

C. Nationality of corporations

1. Control test2. Grandfather rule

Case:

a. Wilson Gamboa v. Sec. Margarito Teves, GR NO. 176579, June 28, 2011

D. Corporations created by special laws (Sec. 4)

E. Corporators and incorporators, stockholders and members (Sec. 5)

F. Corporate juridical personality

1. Doctrine of separate juridical personality (or Doctrine of Corporate Entity

Case:

a. Cease v. CA, GR NO. 33172, October 18, 1979

2. Doctrine of piercing the corporate veil

a) Grounds for application of doctrineb) Test in determining applicability

Cases: a. CIR v. Norton and Harrison Company, G.R. No. 17618, August 31, 1964b. McLeod v. NLRC, GR No. 146667, January 23, 2007c. De Asis and Co. v. Court of Appeals, GR No. L-61549, May 27, 1985d. Martinez v. Court of Appeals, GR NO. 131673, September 10, 2004e. Solidbank Corporation v. Mindanao Ferroalloy Corporation,, GR No. 153535, July 28, 2005f. Yamamoto v. Nishino Leather Industries, Inc., GR No. 150283, April 16, 2008g. ASJ Corporation v. Sps. Evangelista, GR NO. 158086, February 14, 2008

3. Entitlement to constitutional rights

a) Due process

Case: a. Albert v. University Publishing, Inc. G.R. No. 10118, June 16, 1965) b) Equal protection of the law

c) Protection against unreasonable searches and seizure

4. Entitlement to Moral Damages Case: a. ABS-CBN v. Court of Appeals, GR NO. 128690, January 21, 1999b. Coastal Pacific Trading, Inc. v. Sothern Rolling Mills, Co., Inc., July 28, 2006 5. Libel Case:a. Filipinas Broadcasting v. Ago Medical Center, GR No. 141994, January 17, 2005

6. Liability for torts

Cases: a. PNB v. CA, GR NO. 27155, May 18, 1978